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3.1.2008 - USD declines as new year begins

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Date: 2008-01-03 14:44

The beginning of the new year can be characterized by one word - uncertainty. Investors do not know what to expect in the next couple of days as macroeconomic forecasts are not good. The year 2008 started with the weakening dollar.


The EURUSD, the major currency pair in the world , is rebounding from the 1.4580 it reached on Monday. Currently, it is being quoted around 1.47 with big chances of attacking the next resistance level at 1.4750. Breaking this line will open the door for the EURUSD to attack 1.49 in the next couple of days. Important for the greenback will be today’s ISM Manufacturing Index report as well as the FOMC minutes, which will be released at 8 pm CET. In the FOMC report investors will look for signs regarding the future monetary policy of the Fed. As an interest rate cut seemed very probable a couple of weeks ago, increasing inflation in the US caused mixed emotions. If inflation gets out of control, interest rate hikes will be needed and the Fed will try to avoid them.

The weakening dollar is pushing prices of commodities up. Gold, which is negatively correlated to the USD, is back on track to the 850 USD per ounce level currently being quoted at 842 USD (from 830 USD). Gold is gaining value also because investors are escaping to safer investments as risk aversion increases. Declining appetite for risk is perfectly seen on the USDJPY quotations. The Japanese Yen has gained against the dollar from 114.55 to 111.50 in the last week. Equities markets are declining causing investors to close their carry trade positions on the USDJPY. Oil, which is being quoted in American dollars, is on the rise. Currently, oil stands at 95 USD per barrel of Brent oil, a move from the 93 USD it was quoted on Monday. The 100 USD barrier is close and surely will be broken this year. When? I predict that we will see those price levels still in the first quarter of 2008.

The Polish Złoty stays stable. It gains against the dollar as the USDPLN declined from 2.4670 to 2.4480. On the other hand, the EURPLN advanced from 3.5885 to 3.5985. For the Złoty, which is a volatile currency, those are not big moves. Much more investors expect in the next couple of weeks when inflation data for Poland will be published and what comes with it, expectations towards interest rate change.


Adam Narczewski